The consumption function is given by: C = 200+0.75 (Y-T). The investment function is I = 200-25r. G =100 T=100 Suppose instead that money supply is raised from 1,000 to 1,200. How much does the LM curve shift? What are the new equilibrium interest rate and level of income?
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The consumption function is given by:
C = 200+0.75 (Y-T). The investment function is I = 200-25r.
G =100 T=100
- Suppose instead that money supply is raised from 1,000 to 1,200. How much does the LM curve shift? What are the new equilibrium interest rate and level of income?
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- Assume an economy where the consumption function is defined as C = CC + CY and the investment function is defined as l = ir , where Y is total income and r is the interest rate. What does the slope of the IS curve depend on?Economists in Pakland, a closed economy, have collected the following information about the economy for a particular year: Y = Rs.10,500 C = Rs.6,000 T = Rs.1,500 G = Rs.1,700 The economists also estimate that the investment function is: I = 3,300 - 100r Where, r is the country’s real interest rate, expressed as a percentage. Calculate: Private savingBlank 1(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)Public savingBlank 2(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)National savingBlank 3(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)InvestmentBlank 4The equilibrium real interest rateBlank 5(Write Only numbers in the blank. Do not write plus signs, minus signs, commas, full stops, currency etc.)If the government increases taxes to Rs.1,800, calculate private savingBlank 6((Write Only numbers in the…Consider an economy described by the following equations: C = a + b(Y – T) | = cY – di + e Md = fY – gi P || - G = G Ms = M P P = 1 1. Derive an expression for the IS-curve and explain what does this equation represent. 2. Derive an expression for the LM-curve and explain what does this equation represent. 3:Compute the level of private saving when both the goods and the fnancial market are in equilibrium. Symbols have their usual meanings. Please provide mathematical proof.
- Due to some negative news concerning the impact of global warming on the economy, consumers are becoming more pessimistic about the future to the point of reducing autonomous consumption by 50. What is the immediate impact on income before the economy adjusts to its new equilibrium? What are the economy’s equilibrium level of output Y and interest rate r following the fall in autonomous consumption? Compute the equilibrium level of consumption and investment spending. With the help of the IS/LM graph, carefully explain what happens to the economy following the fall in consumer confidence.A worker has a discount factor strictly less than 1 (beta<1). He receives a wage rise of £1,000 this year and expects to receive a further rise of £1,200 next year. The interest rate is R=20%. Using the two-period consumption-savings model, how will this year's consumption change? a. Consumption will increase by less than £1,000 b. Consumption will increase by £1,000 c. Consumption will increase by more than £1,000 d. It is not possible to answer with the information that is providedEconomists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year: YY = = 10,00010,000 CC = = 6,0006,000 TT = = 1,5001,500 GG = = 1,7001,700 The economists also estimate that the investment function is: II = = 3,300−100r3,300−100r where rr is the country’s real interest rate, expressed as a percentage. Complete the following table by calculating private saving, public saving, national saving, investment, and the equilibrium real interest rate. Component Amount Private Saving Public Saving National Saving Investment Equilibrium Real Interest Rate
- 1. Assume that the consumption function is given by C=200+0.5(Y-T) and the investment function is I=1,000-200r, where r is the interest rate, G equals 300, and Tequals 200. a. What is the numerical formula for the IS curve? (Hint: Substitute for C, I, and G in the equation Y=C+I+G and then write an equation for Y as a function of r.) b. If r is one: what is I? what is Y? What if r is 3?What are the basic determinants of investment? Explain the relationship between the real interest rate and the level of investment. Why is investment spending unstable? How is it possible for investment spending to increase even in a period in which the real interest rate rises?So far we have assumed that consumption is determined by disposable income (C = C(Y-T), with the function increasing) and investment is determined by the real interest rate (I = I(r), with the function decreasing). But the real interest rate may affect households' choice between consumption and saving, and firms' sales or cash flow may influence their investment. This problem therefore asks you to consider the implications of some alternative assumptions. a. Suppose C = C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose II(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(YT)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the…
- So far we have assumed that consumption is determined by disposable income (C=C(Y-T), with the function increasing) and investment is determined by the real interest rate (I = I(r), with the function decreasing). But the real interest rate may affect households' choice between consumption and saving, and firms' sales or cash flow may influence their investment. This problem therefore asks you to consider the implications of some alternative assumptions. a. Suppose C=C(Y-T,r), with C a decreasing function of r. With this change in the model, does an increase in G increase C, decrease it, or leave it unchanged, or is it not possible to tell? b. Suppose II(Y-T,r), with I an increasing function of Y-T (and suppose that C is given by C(Y T)). Does an increase in G increase I, decrease it, leave it unchanged, or is it not possible to tell? C. Suppose there are two types of investment. One (for example, the investment of large, mature firm) is determined by the real interest rate, and the…This problem asks you to analyze the IS-LM model algebraically. Suppose consumption is a linear function of disposable income: C(YT) = a + b(YT) where a > 0 and 0 0 and d > 0. (a) Solve for Y as a function of r, the exogenous variables G and T, and the model's parameters a, b, c, and d. (b) How does the slope of the IS curve depend on the parameter d, the interest rate sensitivity of investment? Refer to your answer to part (a), and explain the intu- ition. (c) Which will cause a bigger horizontal shift in the IS curve, a $100 tax cut or a $100 increase in government spending? Refer to your answer to part (a), and explain the intuition.